3 Reasons to Buy Fortis Stock Like There’s No Tomorrow

Fortis (TSX:FTS) stock is a steady appreciator you’d be glad you own if market waters get really rough in 2024.

| More on:
Hourglass projecting a dollar sign as shadow

Source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

With stock market volatility kicking into high gear for the new year (at least so far), investors may be wondering if it’s time to rotate out of the biggest winners (like tech plays) and into the neglected value plays.

Indeed, many of the less-loved value plays sport juicy dividend yields. And while expectations of lower interest rates (and hopes for more cuts than expected) have pretty much worked their way into today’s slate of stock valuations, I still view many yields as a tad on the higher side.

My bet is they won’t stay historically swollen for very long.

Why?

The days of 5% Guaranteed Investment Certificates (GICs) and nearly 2% interest on savings probably won’t last forever. In fact, I believe that by this time next year, you’d be hard-pressed to find a GIC with a rate north of the 4% mark for a term of over 12 months.

In this piece, we’ll focus on one of my favourite Canadian utility firms in Fortis (TSX: FTS). It’s a magnificent dividend stock that likely won’t make headlines throughout the year.

Time to rotate into defensive dividend stocks like FTS stock?

As the rates on risk-free assets begin to retreat, investors should expect some downward pressure on the “risky” yields offered by various dividend-paying stocks. How will yields contract in such dividend plays? It will be via capital appreciation over the next several quarters.

Now, that’s not to say it’ll be an easy, smooth ride higher for your average high-yield utility (like Fortis stock) or banking stock. The terrain remains rough. But it’s a terrain worth hiking on going into 2024’s end. Indeed, sometimes, it’s the hard path that can be most lucrative!

Reason #1: Fortis’s cash flows are highly predictable

In other words, it’s a boring play due to its high degree of cash flow predictability. Further, it’s growing at a pretty decent mid-single-digit rate that’s less tied to how Canada’s economy will fare through this year or through the end of the decade.

This lower sensitivity to economic growth makes Fortis such a fantastic defensive value stock to hold through turbulent market waters. And though the stock has had a bit of a run since bottoming out in the back half of September 2023 (shares up almost 9% since then), I still view the stock as undervalued and the dividend yield as rich, at least historically speaking.

Created with Highcharts 11.4.3Fortis PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

Reason #2: Fortis stock looks cheap right now

At writing, shares trade at 17.8 times trailing price to earnings (P/E) to go with a 4.31% dividend yield. Not a massive yield by any stretch of the imagination. That said, it’s a rock-solid one that’s unlikely to be rattled by even a hard landing for the Canadian or U.S. economies.

At just north of $55 per share, FTS stock ought to be considered a top high-yield value candidate this quarter.

Reason #3: Generous and projectable dividend growth

Additionally, the dividend is slated to grow every year at a fairly decent pace. So, while your workplace may skimp on your raises amid inflation, don’t count on Fortis to miss an annual dividend hike, as it continues to spoil long-term investors seeking the perfect balance of passive income and stability. What more could you ask for as an investor looking to sail through a choppier year?

Should you invest $1,000 in Fortis right now?

Before you buy stock in Fortis, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Fortis wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,345.77!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 24 percentage points since 2013*.

See the Top Stocks * Returns as of 4/21/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has positions in Fortis. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Investing

coins jump into piggy bank
Dividend Stocks

How to Use Your TFSA to Earn $1,057/Year in Tax-Free Income

Investing $5,000 in each of these high-yield dividend stocks can help you earn over $1,057 per year in tax-free income.

Read more »

data analyze research
Tech Stocks

Is BlackBerry (TSX:BB) a Buy in May 2025?

While its recent downturn might not look pretty, it might be the best opportunity to buy BlackBerry (TSX:BB) stock and…

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Investing

Where I’d Invest the New $7,000 TFSA Contribution Limit in 2025

If you have $7,000 for the new TFSA contribution increase, here are three stocks I would contemplate adding to the…

Read more »

open vault at bank
Bank Stocks

2 Banking Stocks I’d Buy With $7,000 Whenever They Dip in Price

Two banking stocks are worth buying on the dip and as reliable passive-income providers.

Read more »

Paper Canadian currency of various denominations
Investing

How I’d Invest $7,000 in Financial Sector Stocks for Stability

This Canadian financials ETF may stay insulated from Trump's tariffs.

Read more »

Man in fedora smiles into camera
Dividend Stocks

How I’d Build a $20,000 Retirement Portfolio With These 3 TSX Dividend All-Stars

If you're worried about returns and want to focus on dividends, these dividend stocks are the first to consider.

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

If I Could Only Buy and Hold a Single Canadian Stock, This Would Be It

Here's why this high-quality defensive growth stock is one of the best Canadian companies to buy now and hold for…

Read more »

dividends can compound over time
Dividend Stocks

3 Canadian Market Leaders Where I’d Invest $10,000 for Sustained Performance

Market leaders like Alimentation Couche-Tard Inc (TSX:ATD) are worth an investment.

Read more »